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EUR CDS Flow - Spreads widen on bank write-down fears.
Informa Global Markets - Bondwatch Morning Insight (Europe) (November 2, 2007)

The CDS market was wider on Thursday following fears over the health of global investment banks. The expected 25bp cut in US interest rates failed to spur a rally as the accompanying statement pointed towards a more neutral stance in the future. Investors were made nervous after analyst notes from major investment banks highlighted that Citigroup may need to raise USD 30bln in capital as a result of its capital ratio falling to its lowest point in decades and that Swiss bank UBS could face more sub-prime write-downs on its mezzanine CDOs to the tune of USD 8bln. Senior 5Y CDS on UBS reacted to this moving out 12bp to 49/54, with sub 9bp wider at 59/64, and its shares fell over 5% on Wednesday's close.

In other single name CDS specific spread moves were hard to identify in such a macro-driven market, but there were plenty of earnings and M&A talk to focus on. Kicking things off in the Financial sector 5Y CDS on Credit Suisse was 6bp at 50/55, whilst its sub was 2bp wider at 51/56, after the bank posted an 11% Y/Y fall in Q3 income from continuing operations, as lower results from Investment Banking and Asset Management weighed on the bank's performance. It was busy in the Consumer sector with plenty of Q3 earnings, including BAT, which reported that Q3 EBIT rose 31.2% Y/Y, whilst Unilever posted a 4% Y/Y decline in Q3 operating profit. 5Y CDS on BAT was flat at 31/35 and on Unilever was also unchanged at 18/20. Traders said that a rumour of a GBP 8.50 a share bid for Scottish & Newcastle from SABmiller was dismissed and that there had been no activity in protection. 5Y CDS on S&N was 1bp wider at 46/51 and on Carlsberg was 2bp wider at 60/70.

In the Industrial sector shares in Akzo Nobel were up over 5% on Wednesday's close after ICI, which Akzo is currently in the process of taking over, reported that Q3 trading profit increased 9.1% Y/Y. 5Y CDS on Akzo was 1bp wider at 24/28 and on ICI was flat at 11/16. Elsewhere AstraZeneca said that that Q3 operating profit slipped 4% Y/Y on restructuring costs and the MedImmune acquisition, but sales and pre-tax profits beat analyst expectations. 5Y CDS on AstraZeneca was flat at 16.5/18.5.



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